Legal Tenders > Chicken Tenders
After El Salvador’s historic decision to adopt Bitcoin as its official currency earlier this month, another domino in Latam looks set to fall.
Happy Friday! I’m pretty fired up right now. Last night I was working/watching my brother-in-law’s Clippers beat the Suns/listening to the President of El Salvador, Nayib Bukele’s address to the nation regarding Bitcoin. It was a lot to take in at the same time but the address certainly stole my attention as it was definitely material.
It started off with President Bukele fielding questions from citizens who were clearly concerned that the decision to make Bitcoin legal tender might drive the US Dollar out of existence in El Salvador. There was a disconcerting tone by the people as there seemed to be animosity around being forced to accept bitcoin as payment.
However, President Bukele eloquently described that they are building out the infrastructure so that businesses can choose whether to accept BTC or USD with a click of a button — there would be no risk of volatility if businesses decided to simply choose to convert the BTC to USD upon receipt — the wallet/POS terminal would do all of the work behind the scenes.
The President of a country patiently explaining bitcoin based payment systems. Pretty bizzare to witness.
To top this all off, President Bukele announced that each registered citizen of their government wallet app will receive $30 in free BTC. Assuming all 4.5m adults in El Salvador take him up on this offer, it would boost Bitcoin’s global user count by ~2.5%.
There were many scenarios which I thought could play out during this cycle but a state-sponsored bitcoin airdrop was not on that list.
Paraguay, you’re up next.
What we saw at the desk
It was a tough week for my (digital) pockets, that’s for sure. However, volatility is undeniably the bestest of friends to our trading desk. The drop to ~$29k and the subsequent bounce to ~$34k made for a big trading day on Tuesday as the desk saw a healthy mix of panic and exuberance from our clients.
Bitcoin stole the show as not only were clients trading for it, but some were also wishing that they had more of it since it held up relatively well compared to their alt positions.
Bitcoin dominance is sitting at 47.5% and rising — up ~8% since it’s near all time low of ~39% on mid-May when I started writing about it.
The China Crackdown
Undoubtedly the catalyst for the recent drawdowns, the Chinese government has been successful in banning bitcoin mining. In what could possibly (probably) be a catastrophic geopolitical blunder, this ban is aggressive as upwards of 90% of all bitcoin miners in the country have been shut down in the last few weeks.
Many of the miners have decided to pack it up and leave China. We can see this happening in real time as the total mining hash rate has fallen off a cliff. Historically, not a great chart for positive price action.
It’s important to understand that this drop in hash rate is temporary as it will be corrected by the difficulty adjustment that occurs every two weeks. In my experience, panic selling due to a dramatic drop in hash rate has been a pretty great time to buy since it’s essentially an arb on the general lack of understanding of a new technology.
While this is a short term kick in the pants for investors, this is very good for bitcoin and a significant blow to bitcoin critics.
Killing two birds with one stone
The narrative that China controls bitcoin is dead. Overnight, China has become irrelevant when it comes to control over the bitcoin network dispelling one of the major arguments from bitcoin critics that bitcoin mining is centralized in China.
The United States is a big winner in this transformation as many Chinese miners are moving to Texas and other parts of the US.
For the ESG thumpers out there concerned with the dirty coal mining in China — it’s over! While there was plenty of clean, hydro-based mining in provinces like Sichuan, there was also a (environmentally) gross amount of coal mining in provinces like Qinghai.
Whether these Chinese miners decide to call it quits or move their operations to other parts of the world, we should be celebrating this gift that we were just given.
In case you missed it…
- 18.3 million Q2 users will be able to buy, sell and hold Bitcoin https://www.businesswire.com/news/home/20210623005896/en/NYDIG-and-Q2-Announce-Collaboration-to-Offer-Integrated-Bitcoin-Solutions-for-Financial-Institutions-via-Q2%E2%80%99s-Digital-Banking-Platform
- Andreesen Horowitz a16z launches largest crypto fund ever: $2.2bn https://www.theblockcrypto.com/post/109408/a16z-third-crypto-venture-fund
- Paraguay set to become the second country to make bitcoin legal tender https://www.euronews.com/next/2021/06/22/is-paraguay-set-to-become-the-second-country-to-make-bitcoin-legal-tender-after-el-salvado
- Nic Carter on hash rate migration from China https://www.coindesk.com/bitcoin-unpacking-hashrate-nic-cart-migration
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Satstreet serves private Canadian clients including some of the largest Bitcoin mining operations, institutions, and high net worth individuals. Satstreet has raised initial funding from Round13 Capital and several prominent investors.
